The big roadblock to China’s ‘reset’

Earlier this month, I wrote a column about Beijing’s plans to shift the Chinese economy from its heavy dependence on manufacturing, investment and exports to more consumption and service jobs. More urbanization means more purchasing power and a more sustainable economy. But Professor Kam Wing Chan of the University of Washington, who studies labor, migration and urbanization in China, points out that the scheme, which depends on moving millions of people into cities, faces serious challenges. “You have totally overlooked China’s hukou, or household registration system, which has largely prevented Chinese rural-urban migrants from joining the middle class,” he told me.

Approximately 230 million migrants work in cities, but are denied the hukou, “a little red booklet that entitles the bearer to truly live like an urbanite.” Without it, these migrants are ineligible for many jobs, can’t get social security benefits, public housing or admittance to a public school for their children. The status is hereditary by law, perpetuating inter-generational poverty.

In the South China Morning Post, Chan wrote, “This gargantuan Chinese labor force without urban residency rights has supplied the global economy with the largest ever army of super-exploitable labor; it has also driven the country’s boom over the past 30 years. Without the hukou system, there would be no China as we know it today. Some have said that it is China’s most potent dirty, secret weapon.” It is also a caste system that is socially and politically explosive.

So is China really serious about making a reset? We will know if it phases out the hukou system. Otherwise, the biggest imbalance imperiling Beijing and all its trading partners has nothing to do with trade deficits, but with this gigantic, growing and unstable underclass.

Washington’s inflation-adjusted gross domestic product grew 2.3 percent in the second quarter, the fifth strongest showing among the states. The new report comes today from the federal Bureau of Economic Analysis. The rate is down from a blistering 4.8 percent in the same period last year (the first quarter’s 11.5 percent was likely a statistical […]

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